Crop Insurance News

ARC Payments Again for 2015; Less Likely in 2016

Dec 18, 2015

With 2014 prices and county yields both now known, it is possible to run some math/numbers and get an idea which way Agriculture Revenue Coverage-County (ARC-CO) payments may go for 2015, which will be received in 2016, and for 2016, received in 2017. Such government support may be difficult to predict due to its moving parts, but it can become a noticeable help to your cash flow, balance sheet other financial measures.

Nationally, more than 90 percent of corn and soybean farms and base acres enrolled in the program. Some 800,000 farms received 2014 ARC-CO payments totaling $3.9 billion, with $3.3 billion of that being paid on corn base.

Based on prices, it would appear similar payments will materialize for 2015. ARC-CO guarantees are based on a five-year Olympic average, dropping the high and low years. USDA’s actual national average prices for 2014 were $3.70 and $10.10. The $3.70 corn price and $10.10 soybean price will replace 2009’s $3.70 and $9.59 as the low prices that will be dropped from the five-year average – so they won’t affect the guarantee. Alejandro Plastina, Iowa State University Extension economist, calculated payments will be triggered at national average prices for the 2015 crop below $3.92 for corn and $10.32 for soybeans.

The wheat price guarantee will improve slightly because 2009’s $5.50 will drop off and the lowest in the new five years will be 2010’s $5.70. The $5.99 seen in 2014 will increase the Olympic average.

The yield factor could increase revenue guarantee

Keep in mind, however, that payments are based not just on prices but on county yields, again using Olympic averages. USDA has released 2014 county yields, allowing estimates for the 2015 crop year. As shown in the table, Iowa State’s calculations indicate the revenue guarantee will increase in more than half of all counties nationally for corn and beans and in 80% of counties for wheat.

Corn

Soybeans

Wheat

Average increase/acre

$13.95

$8.94

$11.47

% Counties with increase

55

52

80

% Counties no change

22

33

0 (3 counties)

% Counties with decline

23

16

20

Shown are average changes, but about 20 percent of counties will see a corn revenue increase of more than $41/acre, though soybeans and wheat changes are smaller. Notice in the map that parts of Iowa and Nebraska and Kansas will have steady or lower corn revenue guarantees. For soybeans, more counties will see no change.

Lower 2016 guarantees are very likely

Brent Gloy at Purdue University figures it will take a 2015 corn price of at least $5.18 or more and soybeans $11.30 or more in order to avoid a dropping price guarantee in 2016. “Market-year average prices at those levels seem quite unlikely at this point,” he says. USDA’s projected price ranges for corn and soybeans in its December supply/demand report top out at $3.95 and $9.65. For wheat, it will take a 2015 marketing year price of above $5.99 (which will be the previous low price that is dropped) to avoid a dip in the guarantee. If USDA’s December estimate – with a high end of $5.20 – is correct, wheat’s price guarantee also will be lower in 2016.

ARC isn’t a huge safety net – it added less than 10 percent to the gross revenue for the 2014 crop – but for some it may still help income with some 2015 crop payments in the fall of 2016, Steven Johnson told attendees at this year’s Farm Credit Services of America-sponsored GrowingOn® 2016 meetings. “Crop insurance is still the important piece of risk management; it guarantees up to 85 percent of revenue,” he said. “That, combined with structured marketing and fixed-cost reductions, are where to focus heading into 2016 and beyond, especially since ARC is unlikely to play much role after 2015.”